After its two-day policy meeting, the Federal Open Market Committee unanimously voted to hold the federal funds rate between 1.00% and 1.25%, citing mixed economic data.

“In view of realized and expected labor market conditions and inflation, the Committee decided to maintain…the fed funds rate,” the central bank wrote in its statement.

Unwinding the balance sheet

At the June meeting, the Fed revealed plans to gradually reduce its $4.5 trillion balance sheet by decreasing its reinvestment of principal payments. Payments will only be reinvested when they exceed gradually rising caps, which start at $6 billion per month for Treasuries and $4 billion per month for agency debt and MBS.

“The Committee expects to begin implementing its balance sheet normalization program relatively soon, provided that the economy evolves broadly as anticipated,” the Fed wrote in its statement.

Previously, the committee said it planned to wind down the balance sheet this year. The addition of the language “relatively soon” potentially signals officials’ inclinations to alter balance sheet policy at the upcoming September meeting.

Economic outlook

Unemployment has hovered just below 5% for the past year, a level many economists consider to be near full employment. The unemployment rate sank to 4.4% in June, near its lowest level in a decade, and non-farm payrolls grew by a better-than-expected 222,000.

“Job gains have been solid, on average, since the beginning of the year, and the unemployment rate has declined,” the central bank wrote in its statement. “Household spending and business fixed investment have continued to expand.”

Meanwhile, recent inflation readings have continued to run below the Fed’s 2% target. The Fed’s preferred measure of price inflation, the core Personal Consumption Expenditures index, fell to 1.4% year-over-year in May, its lowest level in months. Another measure of inflation, the Consumer Price Index, dipped to 1.6% year-over-year in June. The Fed noted that inflation is expected to “stabilize around the Committee’s 2 percent objective over the medium term.”

The Fed also reiterated its balance of risks statement, noting, “near-term risks to the economic outlook appear roughly balanced,” meaning that the economy is no more likely to surprise to the downside than the upside.

Market expectations for a September rate hike dropped to 3%, with the majority of traders forecasting at least one rate hike by early next year.